Loan Singh Answers – Which are the Digital Payments in India? (Part – 1)



The banning of old high value notes in November 2016 has forced us to use e-wallets and execute card payments. We are now embracing digital processes to a level wherein we are now performing transactions via various digital avenues. Although Loan Singh self-initiated its digital lending platform, it has been propelled by the Government of India’s initiatives & policies for pushing digital solutions.

In this week’s ‘Loan Singh Answers’ segment, we look at all the possible Digital Payments in India. For the purpose of convenience, we are breaking this article into two parts.


Digital Payments in India

‘Digital India’ programme was a flagship programme of the Government of India with a vision to transform India into a digitally empowered society. A part of this programme is to promote cashless transactions and convert India into a less-cash society.

We are already familiar with e-Aadhaar or eKYC. The digitalized variants of our identification have made us to embrace digital documentation one way or another. The introduction of Unified Payments Interface has helped traditional banks to enter the digital payments domain, by allowing e-wallet companies to collaborate with such banks. This makes India one of the fast-growing internet services market in the world.

An example of instant payment platform is Google’s payment app, named Tez, which uses UPI as a means to allow users to connect their bank accounts to Google’s services. For this, Google partnered with State Bank of India, HDFC Bank, ICICI Banka and Axis Bank. Tez will compete with already established digital payments players such as PayTM and Alibaba. Not to be left behind, Hike messenger launched a UPI linked wallet within its messaging platform. WhatsApp is also considering entering the digital payment services in India.

Let us look at the first set of digital payments platforms, currently plying in India.



National Electronic Funds Transfer (NEFT) is a nationwide electronic funds transfer system maintained by the Reserve Bank of India (RBI). Individuals, firms and corporates can maintain accounts with a bank branch and transfer funds using NEFT.

  • NEFT was started in November 2005
  • Enables Indian bank customers to transfer funds between any two NEFT enabled bank accounts, on a one-to-one basis
  • It is done via electronic messages and does not occur on real-time basis
  • Fund transfers are done in half hourly batches between 8:00 am to 6:30 pm
  • No fund transfers are done on public holidays, Sundays and some Saturdays (2ndand 4th of every month)
  • It is widely used due to its features of time saving and ease of transactions
  • NEFT can also be done online

NEFT Process

A bank customer fills in an NEFT form mentioning the beneficiary name, account number, branch name, bank name and IFSC code

  1. The originating bank branch prepares a message and sends it to its NEFT Pooling center
  2. From there, the message goes to the NEFT Clearing center, and is added to the next batch
  3. Accounting entries are prepared and forwarded to the destination bank
  4. Upon receiving, the destination bank passes on the credit to the beneficiary’s account


  • Inward transactions at destination bank branches – Free
  • Outward transactions from originating bank – Chargeable
  • For transactions up to Rs.10,001 – Rs.2.50 + GST
  • For transactions between Rs.10,001 to Rs.1,00,000 – Rs.5 + GST
  • For transactions between Rs.1,00,001 to Rs.2,00,000 – Rs.15 + GST
  • For transactions above Rs.2,00,000 – Rs.25 + GST


Mobile Banking

It is a service provided by banks or financial institutions to allow its customers to conduct financial transactions remotely – using a mobile device such as a smartphone or a tablet. Unlike in internet banking, mobile banking makes use of mobile applications developed by the respective institutions. Each bank provides their own mobile banking App for Android, Windows and iOS mobile platforms.


  • Transactions include obtaining account balances or statements
  • Online bill payments
  • Reduces the cost of handling transactions by reducing the need for customer to visit the bank or billing counter
  • Alerts on account activity are available
  • Allows access to loan information, term deposits, etc.


Mobile Wallets

A mobile wallet is an avenue to carry cash in a digital format. You can link your mobile wallet to your credit card or debit card information, which can help you to transfer money online – making use of the mobile wallet. This eliminates the use of a physical plastic card to make purchases. Your smartphone or even the smart watch is enough for making purchases. Your account must be linked to an e-wallet or mobile wallet to load money into. Many banks have their own e-wallets, while some are standalone private e-wallet companies. Example: PayTM, Mobikwik, mRuppee, Oxigen, Jio Money, Freecharge, SBI Buddy, itz Cash, Citrus Pay, Vodafone M-Pesa, Axis Bank Lime, ICICI Pockets, SpeedPay, etc.


  1. Download the e-wallet App on your smartphone
  2. Then choose between being a Customer or a Merchant
  3. Add in your mobile number
  4. Load money into your wallet from your bank account. You can do this using internet banking
  5. You can then make use of your MPIN to make transactions
  6. The cost you need to pay are the remittances to the bank which are fixed between 0.5% to 2.5% per transaction


The mobile wallet allows you to

  • Make a balance enquiry
  • Check your transaction history
  • Add money into your bank account
  • Accept money
  • Pay to another customer or merchant
  • Acts as a bar code reader
  • Apply for bank notifications

Transfer Limit

For users – Rs.1,00,000 per month

For merchants – Rs. 1,00,000 per month



Majority of today’s interbank mobile fund transfers are done via the NEFT mechanism. Keeping the same context in mind, the National Payments Corporation of India (NPCI) conducted a pilot study on the mobile payment system with different banks such as SBI, BOI, UBI, ICICI, etc. Soon more banks, such as Axis, Yes and HDFC, also joined-in, and by 22nd November 2010, Immediate Payment Service (IMPS) was launched.

  • IMPS offers instant fund transfer facility
  • Can be done 24×7
  • Allows interbank electronic fund transfer through the mobile platform
  • Considered safe and economical

Eligibility and Process

The participants for IMPS are Sender, Beneficiary, Banks and NPCI.

  1. You need to register yourself with the bank’s mobile banking service
  2. Get an MMID (Mobile Money Identifier) and MPIN from the bank
  3. Download the software application or use the SMS facility, if enabled
  4. Beneficiary should link his/her mobile number to the account in their respective bank. Get MMID from their bank
  5. To transfer funds, the sender must login in to the application and add the Beneficiary’s mobile number, amount to be sent, beneficiary’s MMID and MPIN
  6. Await confirmation SMS for the debit from your account
  7. Share your MMID and mobile number with the Beneficiary



Electronic Clearance Services is an alternative method for effecting payment transactions w.r.t. insurance premiums, card payments, loan repayments, telephone bills and electricity bills. This helps remove the need for issuing or handling paper instruments and also improve customer service at banks, companies, corporations, receiving payments, etc.


United Payments Interface (UPI) is a system that powers multiple bank accounts into a single mobile application. NPCI conducted a pilot launch with 21 member banks in 2016. Several banks have now uploaded their UPI enabled smartphone applications on Android, Windows and iOS mobile operating systems. UPI also caters to Peer-to-Peer collect request which can be scheduled and paid as per requirement and convenience.


  • UPI merges several banking features making it seamless in fund routing and merchant payments
  • It caters to the ‘Peer-to-Peer’ collected request which can be scheduled and paid as per requirement
  • Immediate money transfer through a mobile device round the clock
  • Single mobile application for different bank accounts
  • ‘Single Click, 2-Factor Authentication’ allows strong seamless single click payment
  • Bill sharing is now possible
  • Eradicates the hassles for COD, ATM withdrawal and carrying exact change
  • Scheduling of PUSH and PULL payments for various purposes


  1. Possess a bank account
  2. Link your mobile number to your bank
  3. Download the UPI app
  4. Update the app with your information
  5. Create a virtual ID
  6. Set a MPIN


  • You can check your balance
  • Check your transaction history
  • Send or make monetary payments
  • Change or set your MPIN
  • Transfer limit is Rs. 1,00,000 per transaction



Prepaid Payment Instruments (PPI) facilitates transactions related to funds transfer, purchase of goods and services against the value stored on such instruments. The value stored on the PPI represents the value paid by the holders by cash or through their bank accounts. Examples of PPI are smart cards, magnetic stripe cards, internet accounts, digital wallets, mobile wallets, paper vouchers, etc. PPI is regulated by RBI and are generally of 3 types – Closed system, Semi-closed system and Open system payment instruments.



POS or Point of Sale is a terminal where you can make payment for completing a purchase transaction and making a checkout. On a major level, a POS can be a mall or even a market.

Physical POS

A physical POS machine is a handheld device or a bio metric reader. It is linked to a merchant bank account. You need internet connectivity or GPRS connection. To get a physical POS machine activated, you need to perform the necessary paperwork with the merchant bank, deposit certain amount in it, apply for the machine and get it configured by the provider. You can use any bank’s debit or credit card to make payments with a physical POS machine. The merchant’s bank may set a limit based on its own discretion. There is no limit for the machine user.

Mobile POS

Here, a mobile phone acts like a POS machine. You need to have the App installed on your smartphone from the bank. An external card reader or bio metric reader can be used to read cards. The reader is connected to the smartphone either by a USB cable or Bluetooth. The app also reads bar code. The transfer limit and setting-up process is the same as a physical POS.


More on Digital Payments will be featured on Part 2 of Loan Singh Answers.


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